Afternoon
So I've been obsessing over Occidental as of recent and decided to use the single stage growth model to find their estimated intrinsic value. I'm using the single stage growth model as opposed to the three stage growth model (used by GS and Merrill) for a few reasons. I believe that the three stage growth model allows for too many variables and makes too many assumptions. Also Buffett discounts future cash flows using a single discount rate. I'm gonna lay out the assumptions I've made and would love to have a discussion about where I may be wrong and what your thoughts may be.
So essentially what I've done is looked at their past 10 years of dividend growth history. From there I make a large assumption. I assume that the the dividend growth in the next 10 years will mirror the growth (or lack thereof) of the last 10 years. After doing this I discounted their dividends at an 8% discount rate. I chose this number because it is what OXY will be paying to Buffett and I am assuming his terms are as favorable towards the lender as they come. I discounted all the projected future cash flows. I reached 2028, calculated the price using an 8% cost of capital, a very safe 1.5% growth rate in perpetuity, and finally discounted this number back to the present using the prior mentioned 8% cost of capital. I have absolutely no clue if what I just typed out will make any sense. If you would like to see my google sheets file I will be happy to share. Any thoughts on any of this or anything related to oxy?
My final calculations found the value of the company using the above assumptions to be $82.93 assuming a perpetual growth of 1.5% after 2028.
Using a margin of safety of 25% the intrinsic value should fall between $103.66 - $62.19
If we assume a 3% growth into perpetuity the intrinsic value would be $96.96
Submitted May 08, 2019 at 01:48PM by LARGE-NIGGA http://bit.ly/2Y9bVy2
